Should gov't add energy bond to public debt? (2)
From the regulations, it is clear the government does not need the clearance of any other parties to its rights to appoint majority of the directors to direct the activities of the company.
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From the regulations, there are no clear barriers that prevent the government from appointing majority of the directors, which will prevent the government from directing the relevant activities of the company.
This can be deduced from the fact that the prospectus specifies that the government can unilaterally take actions as defined as default events triggered by the government (Sponsor Event of Default). Default by sponsor includes:
i. The sponsor amends or varies (or procures any other person to amend or vary) any portion of the ESLA or does (or permits the omission of) any act or thing as a result of which (a) the ESLA shall be repealed (b) the rights of the issuer under the assignment agreement shall be adversely affected, or (c) the assignment agreement shall be rendered frustrated or unenforceable;
ii. The sponsor fails to transfer the relevant tranche of the ESLA receivables into the ESLA receivables account and such failure to transfer continues for a period of more than 10 business days;
iii. The sponsor fails to meet its obligation to satisfy its capped cash commitment; or
iv. The sponsor fails to meet any of its obligations under the assignment agreement which, in the opinion of the bond trustee (determined in its sole discretion), is materially prejudicial to the interests of the bondholders.
Criteria 2: Assessing whether government’s exposure, or rights, to variable benefits from its involvement with company IPSAS 35. 31 specifies that the entity’s benefits from its involvement with the entity being assessed for control can be only financial, only non-financial or both financial and non-financial.
Financial benefits include returns on investment such as dividends or similar distributions and are sometimes referred to as “returns”.
Non-financial benefits include advantages arising from scarce resources that are not measured in financial terms and economic benefits received directly by service recipients of the entity.
Non-financial benefits can occur when the activities of another entity are congruent with (that is, they are in agreement with) the objectives of the entity and support the entity in achieving its objectives.
For example, an entity may obtain benefits when another entity with congruent activities provides services that the first entity would have otherwise been obliged to provide.
Congruent activities may be undertaken voluntarily or the entity may have the power to direct the other entity to undertake those activities.
Non-financial benefits can also occur when two entities have complementary objectives (that is, the objectives of one entity add to, and make more complete, the objectives of the other entity).
IPSAS 35. BC48 argues that the IPSASB agreed that the term “benefits” is more appropriate than the term “returns” in the public sector, particularly given the existence of control relationships in the absence of a financial investment in the controlled entity.
The IPSASB considered that the term “returns” could be regarded as giving an inappropriate emphasis to financial returns, whereas in the public sector, benefits are more likely to be non-financial than financial. The term “returns” was retained in the context of investment entities.
In addition, IPSAS 35. AG58 notes that in the context of non-financial benefits, an entity may receive benefits as a result of the activities of another entity furthering its objectives.
The benefits may be variable benefits for the purpose of this standard because they may expose the entity to the performance risk of the other entity.
If the other entity were unable to perform those activities, then the entity might incur additional costs, either from undertaking the activities itself or by providing additional funds or other forms of assistance to enable the other entity to continue providing those activities.